Proposed reforms to the way the World Bank is governed tinker at the edges, promising only marginal improvements for developing countries; critics are stepping up the pressure for a fundamental rethink.
The World Bank board will discuss a package of reforms to the way the Bank is governed at its annual meetings in October, hoping to agree a concrete set of actions by next spring. Despite calls from developing countries, civil society and others for root and branch change to address the Bank’s gaping deficits in democracy, legitimacy and accountability, the proposals are uninspiring.
What’s on the table?
Bank staff drew up a set of ‘options for reform’ which has been discussed by executive directors, and will be revised again before the annual meetings.
Some minor changes are probable in voting shares, which will mean developing and transition countries gain a few percentage points, whilst developed countries maintain the majority of shares. These are likely to cover only IDA and IBRD ignoring the fastest growing arm of the Bank, the International Finance Corporation (IFC). The Bank’s decision-making process, with its veto for the US on major decisions, is unlikely to change.
An extra board member for Sub-Saharan Africa should be agreed, bringing their total to three – each representing an average of 16 countries – while Europe retains eight chairs, and the five biggest shareholders (United States, Japan, Germany, France and the United Kingdom) maintain permanent seats.
Despite fierce opposition from the US, some commitment is likely to be made to a more transparent, open selection procedure for the World Bank president. In practice however, it is unclear whether this will actually mean the end of American hegemony: the experience at the Fund, which maintained the European stranglehold on the top spot last year, suggests not (see Update 57). In fact, the overall package looks eerily similar to that agreed by the IMF in April (see Update 60) despite the huge differences in the institutions’ mandates and objectives.
What about parity?
Developing countries have proposed that future reform should be based on the principle of “parity:” equal voting share for borrower and non-borrower countries. This principle has been supported in a letter sent to World Bank president, Robert Zoellick in August, signed by over 80 NGOs and numerous influential figures from around the world.
European governments appear to have avoided the pressure to consolidate their eight seats at the board this time round, while calls by civil society for far greater Bank transparency have been kicked to the ongoing review of Bank disclosure policy, which is likely to conclude next year.
The danger is that piecemeal reform of the kind that’s on the table could prevent further change. During negotiations differences have arisen between African states, keen not to jeopardise their chance for an extra board seat by pushing too hard for parity this time round, and other developing countries who have argued that reform without parity is “unacceptable”.
The roots of the problem
As Ngaire Woods, of Oxford University, argued in a paper published in June, “the problem for the IMF and the World Bank is that their governance structures are locked in the past.” The World Bank is headquartered in Washington, home of the world’s largest debtor, she argues, yet “today global development finance is increasingly accessed directly from private sources and emerging economies such as China, the Gulf States, India and Brazil.”
Meanwhile, developing countries most affected by the policy advice and lending practices of the Bank have little say. As former IMF Chief Economist, Raghuram Rajan put in a paper on “The Future of the IMF and World Bank” published earlier this year: “some of the largest industrialised countries brook no interference in their own domestic policies, while being fully prepared to use multilateral agencies to intervene in the domestic politics of others.”
As Liz Stuart of NGO Oxfam said: “The system is so out of kilter with the Bank’s goals, and it completely fails to recognise global realities.”
Time for a fundamental rethink?
The question that critics are increasingly asking is: how much longer can piecemeal change to be Bank and Fund continue when the governance of the institutions remains rooted in post World War II realities? Prospects for such a fundamental rethink may be better now than at any time in recent memory. The global financial crisis has shaken faith in existing international financial institutions. The World Bank is becoming just one amongst many sources of development finance, and faces direct competition in South America from the newly created Bank of the South (see Update 62.)
Most importantly, perhaps, environmental problems not only create a need for massively increased transfers of resources to help poor countries adapt to climate change, but also means we may have to re-examine the way we govern global financial flows and manage global public goods.
Heads of government from the 53 Commonwealth states met in June and said: “We intend to pursue the redefining of the purposes and governance of the Bretton Woods institutions, including working towards a Commonwealth consensus and wider international support for an international conference to achieve these goals.”
The upcoming UN Financing for Development (FfD) conference in Doha beginning at the end of November promises to catalyse further demands for change. The first draft of the FfD outcome document states: “changes in the governance regime of the global economic and financial institutions are needed.” It goes on to argue that there is a “need to convene a major international conference to review the international financial and monetary architecture and global economic governance structures.” Similar calls have also recently been made by President Lula of Brazil, and President Sarkozy of France, amongst others. Time for a second Bretton Woods conference? The case could hardly be stronger.